Public
Bill Committee

Tuesday
6 March
2012

(Morning)

[Mrs
Linda Riordan in the
Chair]

Clause
21

Content
and effect of licence
conditions

10.30
am

Seema
Malhotra (Feltham and Heston) (Lab/Co-op): I beg to move
amendment 31, in
clause 21, page 14, line 31, at
end insert—

‘(g) provision
relating to a compensation scheme for the noise pollution arising out
of licensed activities which affects persons residing or occupying
business or community premises in an area designated in the licence
conditions.’.

It
is a privilege to serve under your chairmanship, Mrs Riordan, and I am
grateful for the opportunity to introduce the amendment and to debate
clause 21. I welcome the Government’s recognition of
the importance of the environment to aviation and the fact that that
informs important principles underlying their emerging sustainable
aviation policy framework. The CAA’s recently published
consultation document, “CAA and the Environment”, also
states that the CAA, as the aviation industry’s regulator, has a
potentially key role to play in helping the sector improve its
environmental performance. The CAA’s stance is helpfully stated
as
follows:

“In
areas such as airspace and noise, where we have a driving role, we will
promote stretching environmental outcomes and challenge industry to
deliver against
them”.

We
all recognise the need for aviation to support our economy and the
vital importance of airports in providing local employment. However,
one set of stakeholder needs that do not appear to be as well
recognised or reflected in the Bill, or in the CAA’s useful
environmental consultation document, are those of the residents who
live around airports and who are exposed to aircraft and other noise
that may arise from licensed activities and surface transport. The
consultation document states that aviation noise is a local issue for
neighbourhoods around airports and that any policy solutions will need
to find ways for residents and airport owners to engage with each other
more constructively. However, although the wording that describes the
desired outcomes for the CAA’s environmental objective, as set
out in its strategic plan, refers to sector ambitions, to consumers and
to consumer choice, no specific reference is made to local
residents.

Jim
Shannon (Strangford) (DUP): Regarding the stalemates that
may arise in relation to an extension to an airport and local residents
concerned about noise, is some method of arbitration perhaps necessary
within the legislation to ensure that, where there are two opposing
points of view, somewhere in between can be found for them to agree
on?

Column number: 214

Seema
Malhotra: I thank my hon. Friend for that intervention,
and I will be commenting on extending the CAA’s role beyond just
reporting on the environment to potential roles as referee and
adviser.

As
I was saying, the CAA’s environmental objective refers to sector
ambitions, to consumers and to consumer choice, but there is no
specific reference to local residents, despite a reference to a clear
commitment to protect the public’s interests. We support the
work on noise modelling and environmental reporting that the CAA will
be undertaking. Although the amendment makes specific reference to
noise pollution, other vital environmental issues, including emissions,
reporting and so on, are covered by other amendments and will be
debated during consideration of later clauses or returned to in later
stages of the
Bill.

The
amendment has the support of my local authority, the London borough of
Hounslow, and, in essence, it seeks a provision relating to a
compensation scheme for noise pollution arising from licensed
activities. The measure would support local residents, businesses, and
community premises being potentially insulated according to a formula
based on geographic zone or noise levels that could be decided or kept
under review by the Secretary of State, as a minimum level of the
airport’s responsibility to the local
area.

Heathrow
is a vital economic asset, which provides employment to many thousands
of my constituents and those of neighbouring boroughs. It is estimated
that Heathrow provides more than 110,000 jobs. For Hounslow’s
quarter of a million residents, however, the daily environmental
impacts of Heathrow include flights overhead every 60 seconds, and the
majority of the borough is located within the 55dB(A) Lden aircraft
noise contour area.

We know that
noise has many impacts. A recent report by Barts and the London School
of Medicine and Dentistry on the effect of nocturnal noise on health
documents the relationship between noise and stress levels, and the
impact of aircraft noise on annoyance and irritation. The report states
that recent secondary analyses of the London Heathrow sample of
children from the RANCH project—the EU project on road traffic
and aircraft noise exposure and children’s cognition and
health—examined the effects of daytime aircraft noise exposure
at home and at school, and concluded that aircraft noise exposure at
school had a significant effect on children’s cognitive
development and that schools needed to be an important focus for the
protection of children from aircraft noise.

Although I
have drawn on examples from my local area, the impact of noise is a
national issue that affects any airport location. The good practice
guide on noise exposure and potential health effects from the European
Environment Agency states that 27% of people in the 55dB(A) Lden level
areas are highly annoyed by noise, which has implications for
irritation, anxiety and stress. Disturbances in the early morning have
been proven to have a serious effect on people’s health and
well-being. The CAA is the regulator of aviation activity in the UK,
but its responsibility for the environmental impact of aviation has
been the subject of much debate and will continue to be so. The
amendment seeks to ensure that the CAA has some authority to help
control the effects of noise and ensure the quality of insulation and
mitigation schemes that each of the major UK airports operates in the
interests of local residents and the local work force.

Column number: 215

The
idea is not without precedent; in the United States, airport-related
noise insulation schemes are not only regulated, but administered by
the Federal Aviation Administration across American airports. The UK
has a voluntary system of noise insulation for communities affected by
aircraft noise. In Heathrow’s case, the operator, BAA,
administers a voluntary scheme that provides noise insulation grants.
Good progress has been made under the scheme, and BAA consulted on a
new scheme last summer, which we hope will lead to further
improvements. Much of the negotiation has taken place, and will
continue to do so, between airport operators and local
authorities.

I welcome the
reporting of environmental impacts by the CAA, which will, in time,
lead to greater consistency in monitoring and a more robust evidence
base to support dialogue and negotiations between local authorities and
airports. However, one of the Bill’s unintended
consequences—particularly as it lays open the possibility of
inter-terminal competition—may be a lack of clarity about who
will be responsible for negotiating with local authorities and under
what formula different operators may have different levels of
responsibility. Residents who live near airports will not thank us when
battles begin about who should be responsible for working with local
authorities to help mitigate the effect of aviation on local
families.

In the
amendment, the Opposition argue that, in addition to a passive
reporting role, the CAA’s roles should include those of advisor
and referee, and that airport operators’ responsibilities to
local communities should be clearly referred to as part of the licence
conditions under which they operate. That will help to provide greater
clarity and consistency in the principles of noise mitigation schemes,
which vary—sometimes rightly, sometimes not—across the
country. Clear minimum standards should be set, and local authorities
should be given the tools and support to negotiate effectively for the
needs of their local communities. I am sure there will still be room
for local flexibility on that, including on the specifics of any
compensation scheme and on local choice of
product.

I
thank the Committee for the opportunity to move this amendment. I hope
that enshrining such a provision in the licence conditions would enable
us to lock in for the future current good practice that might otherwise
be watered down or lost as the regulatory regime changes and new
systems and priorities are
introduced.

The
Minister of State, Department for Transport (Mrs Theresa
Villiers): I listened with great interest to the hon.
Lady’s thoughtful contribution, and I am in no doubt of the need
for all airports to consider and properly address their noise
impact.

The
hon. Lady and I have a great deal of common ground, but despite that
there are a number of important reasons why I cannot ask the Committee
to support the amendment. Clearly, her constituency is significantly
impacted in a positive way by Heathrow, with all the job opportunities,
but it is subject to much of Heathrow’s noise impact,
too.

First,
I do not feel able to support the amendment because it contains a
significant technical flaw. Although the amendment seeks to insert a
provision on compensation for noise pollution arising from licensed
activities, it is not entirely clear on the meaning it attributes to
“licensed activities”. I assume that the intention is to
refer to

Column number: 216

clause 68’s definition of airport operation services as
“licensed activities,” but clause 68 expressly excludes
air transport services from the definition of licensed activities, so
it actually excludes flights. If the amendment seeks to allow
compensation for noise arising from flights, it could not achieve that
as drafted, which is one reason why I do not think it would be wise for
the Committee to support
it.

A
more substantive reason for opposing the amendment is because, as I
said in response to amendments tabled by Opposition Front Benchers and
to questions during the evidence sessions, environmental protection
measures should not depend on whether an airport happens to be subject
to economic regulation. If there is a case for environmental
regulation, this should depend on the airport’s environmental
impact, regardless of whether the airport happens to have substantial
market power and fall within the scope of the economic regulation
framework set out in the
Bill.

Of
course, noise is a real concern for many people who live around
airports—noise is a particular issue at Heathrow, and the
Government’s concern about the noise impact was one of the major
reasons for our opposition to building the third runway—but, as
the Committee has heard on a number of occasions, I do not feel it is
right to rely on the economic regulator to act as a policeman on
environmental
issues.

We
want to see airports making every effort to reduce noise impact and
engage constructively with local communities on that, which is why, as
we have heard, the Government directly regulate noise at the
nation’s three largest airports. That regulation includes
restrictions on both day and night noise at Heathrow. At other
airports, planning law enables local authorities to introduce
restrictions to protect local communities from aircraft noise. For
example, a cap may be imposed on the number of flights to and from an
airport. The EU environmental noise directive 2002 requires noise
action plans to be produced by all airports with more than 50,000
annual
movements.

The
CAA is bound to consider environmental matters in its work on airspace
management, which is separate from economic regulation, including
within the future airspace strategy on which it is working with NATS.
The Government’s consultation on a sustainable framework for
aviation will consider what more can be done to mitigate
aviation’s noise impact, as well as many of the issues raised by
the hon. Lady today. For those reasons, I hope that she will consider
withdrawing her amendment, as it does not achieve the aim she aspires
it to. I also feel, as I have said, that using the licensing system is
not the best way to deal with the environmental impacts of
aviation.

10.45
am

Seema
Malhotra: I thank the Minister for her response. What is
heartening is that the need to deal with the issues of noise and other
impacts for local residents is understood. I also recognise her points
about technical interpretation of the amendment. Under clause
68,

“the landing and
taking off of aircraft”

is referred to, but
before that, that clause states
that

“‘airport
operation services’ means services provided at an airport for
the purposes
of—”,

so
perhaps a discussion could be had later about a better phrasing of the
amendment.

Column number: 217

Although I
take the Minister’s points on board, I think we need
to work towards a solution that will stand up nationally. We are not
there yet, but I am happy to withdraw the amendment and continue
discussions, perhaps looking at introducing a further amendment at a
later stage in the Bill. On that basis, I beg to ask leave to withdraw
the amendment.

Amendment,
by leave, withdrawn.

Question
proposed, That the clause stand part of the
Bill.

Jim
Fitzpatrick (Poplar and Limehouse) (Lab): I hesitate to
raise this point now, but I want to ask the Minister a question about
licensing. With your indulgence, Mrs Riordan, I will be
brief.

I
sought some clarification about the CAA’s various licensing
responsibilities for airports from the excellent Ms Louise Butcher,
whom many colleagues will know as the transport policy specialist at
the House of Commons Library in the Department of Information Services.
As the Committee will remember, I referred last week to licensed
airports; I was unclear about the different airports that would be
covered by the licensing arrangements. After asking for clarification
from the Library about the different licences, Ms Butcher advised
me:

“Licences
issued under Part 1 of the Bill are in addition to the operating
licence. So, for example, Heathrow would require an operating licence
in order to, in effect, be a commercial
airport.”

However,

“all
commercial airports need an operating
licence.”

I
would like the Minister to think about what Ms Butcher then
suggested:

“I
wonder if it might be useful to put down an amendment to the Bill
changing references to ‘licence’ in Part 1 to something
like ‘regulatory licence’, in order to differentiate it
from the general ‘operating
licence’?”

That
would give greater clarity to the different airports. Perhaps the
Minister will reflect on that point, because I think it would
tidy up the Bill. That is not a matter on which the Opposition seek to
oppose the clause; rather, we ask for clarification, either today or at
some point in future.

Mrs
Villiers: I am grateful to the shadow Minister for raising
that point. It is important, as he says, to distinguish the kind of
licences that every airport needs for the purposes of safety and
operations from the licences we propose to introduce for the purposes
of economic regulation, which would apply only to certain airports
passing the tests we have discussed.

I
am clear that the Bill provides appropriate separation of the different
categories, but I am happy to reflect on what the shadow Minister has
said. It is important that the Bill maintain clarity, and although I am
content for the moment that clarity is achieved, I will look again in
case anything further can be done.

Question
put and agreed to.

Clause
21 accordingly ordered to stand part of the Bill.

Clauses
22and 23 ordered to stand part of the
Bill.

Column number: 218

Clause
24

Appeal
to Competition Commission: conditions of new
licences

John
Woodcock (Barrow and Furness) (Lab/Co-op): I
beg to move amendment 21, in
clause 24, page 17, line 10, leave
out from ‘whose’ to ‘affected’ and
insert

‘financial
interests are substantially
adversely’.

It
is a pleasure to serve under your chairmanship today, Mrs Riordan, and
to contribute to the proceedings. The amendment would raise the
threshold under which appeals may be made to the Competition Commission
against the licence conditions imposed by the CAA in a new licence. We
support the principle of the new regime allowing appeals to be brought
via the Competition Commission, rather than requiring judicial review,
but we wish to ensure that effective safeguards are in place against
the appeals process being used in a frivolous or vexatious
manner.

Under the
Bill as it stands, an appeal may be brought under any circumstances by
the holder of the licence—the airport owner—and by
providers of air transport
services

“whose
interests are materially affected by the
decision”.

During
pre-legislative scrutiny, a number of airport operators and their
representatives argued that the appeals process should be balanced and
that appeals against licence conditions by airlines should not be too
numerous or effectively become a reflex reaction to every licence
granted. In oral evidence to the Committee, Members will recall that
Emma Gilthorpe, the director of regulation at BAA Airports Ltd,
suggested that there was a risk of appeals being quite numerous under
the Bill as it stands. She said that at Heathrow, with a revenue
turnover of £1 billion each year through airlines, even small
changes in the price control system would lead to an airline being
considered as materially affected, thus potentially triggering an
appeal.

A
similar point was made by Gatwick Airport Ltd in its written evidence
to the Committee. It pointed out that the Bill does not define
“materially affected”. It
wrote:

“virtually
all airlines operating (or potentially operating) at a particular
airport could argue that they have a material interest in the
airport’s licence conditions, particularly those which related
to price
controls”.

Gatwick
also points to the Competition Commission’s own recommendation.
It expressed concern that a system in which numerous unmeritorious
appeals are pursued increases the burden on the regulated company and
increases the risk of the Competition Commission effectively becoming
the regulator of the system. As I am sure the Minister agrees, it would
be deeply counter-productive to the principles of the Bill, which we
support, if, because of an imperfectly specified appeals process, an
attempt to shift regulatory powers to the CAA shifted power to the
Competition Commission instead.

The Airport
Operators Association also raised concerns, saying that it was unclear
under the proposed system what the motivation would be not to appeal,
and
adding:

“it
is not difficult to foresee a situation where appeals become habitual,
because they represent a risk-free opportunity to secure a better
commercial outcome for
appellants.”

Such
a scenario raises the potential for a regulatory logjam of appeals,
slowing the process of investment in improving airports, to the
long-term detriment of passengers

Column number: 219

and freight shippers. The Select Committee agreed with airports’
concerns on this issue, calling on Ministers to ensure that the
Competition Commission has adequate powers to strike out vexatious and
frivolous appeals. In particular, it recommended that the Government
should specify more clearly what constitutes a “materially
affected” air transport operator. We are concerned that
Ministers have chosen not to accept that recommendation. Our amendment
would establish a much stronger test of which air transport operators
could lodge appeals, requiring that they be operators
whose

“financial
interests are substantially
adversely”

affected
by the new licence conditions. The amendment would prevent vexatious or
frivolous claims from operators that would be only marginally affected
by licence conditions. It would prevent large numbers of airlines at a
given airport from introducing co-ordinated appeals and would
discourage appeals based on hypothetical air operations. The proposed
wording leaves plenty of scope for genuine and warranted appeals, while
limiting the potential for regulatory gridlock, so we hope the Minister
will be able to accept
it.

Graham
Stringer (Blackley and Broughton) (Lab): I want to speak
to amendment 5, which is in my name and that of my hon. Friend the
Member for Bolton
West—

The
Chair: Order. We will come to that amendment later. We are
dealing purely with amendment
21.

Mrs
Villiers: Thank you, Mrs Riordan. I am sure that the
Committee will wait with bated breath for the contribution of the hon.
Member for Blackley and Broughton, who raises an important point in
amendment 5 that we will be able to debate
later.

I
am grateful to the hon. Member for Barrow and Furness for raising the
issue and for giving us a chance to debate one of the most important
aspects of the Bill. If I may trespass on your patience for a little
longer than usual, Mrs Riordan, I would like to explore some of the
broader issues relating to the appeals process, because it is
crucial.

For
both technical and substantive reasons, I cannot support the amendment.
At the technical level, I question why it has been tabled to clause
24(2)(b) but not clause 25(2)(b), which contains the same phrasing.
Accepting the amendment would create an unjustified and irrational
inconsistency between the grounds on which an appeal could be made
regarding the conditions of a new licence, and those on which an appeal
could be made against the modification of licence conditions.

I do not
accept the heart of the argument put forward by Opposition Front
Benchers, and nor do I believe that a case has been made for the
concept of “materially affected”, which the amendment
seeks to delete, being problematic to apply in practice. Whether
someone is materially affected by a decision is a question of fact for
the Competition Commission to decide. The concept of something being
“material” is used in many other legal contexts without
giving rise to problems of predictability and consistency. For example,
under the Electricity and Gas (Internal Markets) Regulations 2011,
permission to appeal may be refused by the Competition Commission where
a person is not materially affected. The terms
“material”, “material change”,
“material circumstance”,

Column number: 220

“material considerations”, and so on, have all previously
been used in statutes, and the term has been used in legislation since
at least 1906. A recent example can be found in section 897(2)(b)(i) of
the Companies Act 2006, which refers to
the

“material
interests of the directors of the
company”.

A
further reason for the Committee to oppose amendment 21 is that it
would have a negative impact on the effectiveness of the reformed
system of economic regulation proposed in the Bill. It would be a
significant and fundamental change. I must say that I see a surprising
inconsistency in the Opposition Front-Bench team’s position.
They were adamant last week that airlines were effective
representatives of passengers and should have an important role in the
regulatory system, and they tabled amendments to that effect. Now,
however, they are seeking to dilute what is probably the most important
right that the Bill grants to airlines—one that I believe
airlines will be able to use effectively to defend their interests and,
crucially, the interests of
passengers.

11
am

As
Committee members will probably be aware, the Bill draws on work going
back some years, including the Pilling report, the Cave review and
various consultations under the previous Government. There is no doubt
that the appeals process has been the subject of lively debate
throughout the deliberations that have led the Government to where we
are today and the Committee to this
amendment.

The
shadow Minister has alluded to the dilemma that the Government faced on
the kind of appeal rights to grant: on the one hand, we want a balanced
and fair system that will be effective in holding the CAA to account
for its decisions and the impact of those decisions on passengers; and
on the other hand, it would be unwise, and it would not be right, to
create such broad appeal rights that we end up with a slow and
expensive two-tier decision-making system of the sort outlined by the
hon. Member for Barrow and
Furness.

Various
options were considered, including vesting a right of appeal in
airports and the Secretary of State, to ensure that we do not end up
with a two-tier system. The airlines were concerned about that, but, to
their credit, they took a constructive approach by proposing a number
of ideas and working hard to develop an effective but constrained right
of appeal that balances the competing concerns that I have
outlined.

After
extensive engagement with different stakeholders, including airlines, a
more powerful right of appeal than the judicial review options
available under the current system was included in the Bill—I
welcome the shadow Minister’s supportive approach to
that—but that powerful right of appeal is still limited in
important ways to ensure that it cannot be used to clog up the
decision-making process unreasonably. The right of appeal is available
only to materially affected airlines, for example, but it is also
constrained in other ways: an appeal does not suspend a licence
condition, except in some limited and defined circumstances; and
appeals are adjudicative, rather than
investigatory.

John
Woodcock: I thank the Minister for attempting to address
the issues I laid out in the amendment, but what does she think of our
concern about materially

Column number: 221

affected airlines? In our example of Heathrow, a fairly minor change
could materially affect every airline in the place and lead to a
logjam. She needs to address that key
point.

Mrs
Villiers: That is a timely intervention. Not only does
constraining the right of appeal to materially affected airlines
provide a safeguard, because it limits the scope of the appeal process,
but we have also included a number of additional safeguards in the Bill
to address exactly the sorts of concerns raised by the hon. Gentleman.
I will outline those safeguards, but there will be a further
opportunity later to debate those safeguards in more
detail.

Appeals
will be adjudicative, rather than investigatory, which is an important
restriction. The process will also be subject to strict time limits,
and the Competition Commission may make an order for costs following
its decisions, so an appeal will not necessarily be an entirely
risk-free option. As I have said, the proper place for detailed debate
on such concepts is probably during our consideration of later
amendments, but if the Committee adopted the amendment, it would
destabilise a carefully constructed compromise package on appeals that
now commands significant
support.

In
its written evidence to the Committee, easyJet
states:

“Airlines
can play a…constructive and effective role through participating
in an appeal process, not just initiating
one.”

Virgin’s
written evidence
notes:

“Virgin
Atlantic has consistently supported the proposals for the Competition
Commission to become an appellate body for CAA decisions, subject to
the caveat that all parties with a material interest are granted the
right to
appeal.”

Nigel
Mills (Amber Valley) (Con): I would not like to miss the
Minister before she concludes her response. The Committee will not be
too surprised to learn that my question is purely semantic and
technical. Clause 24(1) refers to clause 15, which lists the
draft licence conditions. Clause 15(2) refers to a person as being the
“applicant for the licence”, whereas the reference in
clause 24 is to the “holder of the licence”. Can the
proposed operator hold a licence before the licence has been granted
and comes into force or should we still refer to the
“applicant” rather than the
“holder”?

Mrs
Villiers: As ever, my hon. Friend’s eye for detail
is second to none. I may take some advice on that and respond to him a
little later, as I have to confess I am not entirely sure of the
answer.

In
conclusion, I would argue that there is no need to remove
“materially affected” from subsection (2)(b) because a
range of other important safeguards are in place to prevent abuse of
the appeal right system, some of which I have set out. A further
safeguard is provided by clauses 24(5) and 25(5). As the shadow
Minister pointed out, those two subsections provide that the
Competition Commission may refuse permission to appeal on the grounds
that the appeal is trivial or vexatious, or has no reasonable prospect
of success. So the Bill gives the Competition Commission the power to
stop an appeal in its tracks if it has no merit and no prospect of
success.

Column number: 222

As
drafted, clause 24 gives important rights to airlines to hold the
regulator to account in relation to decisions that may have a
significant impact on their businesses and their passengers. I do not
believe that the Opposition made the case for the significant
restriction in airline appeal rights, so I hope that, given this
reassurance, they will withdraw the amendment—if they do not, I
would have to ask my colleagues to oppose
it.

John
Woodcock: I thank the Minister for that response, but we
remain concerned and we will need to reflect on this. I hope that she
will, too, given the substantial issues that we have set out today.
Although I reserve the right to come back to this later, I beg to ask
leave to withdraw the
amendment.

Amendment,
by leave,
withdrawn.

Graham
Stringer: I beg to move amendment 5, in
clause 24, page 17, line 19, at
end add ‘, or

(c) that the appeal,
if granted, would have effects inconsistent with the duties of the CAA
under Section
1.’.

The
Chair: With this it will be convenient to discuss
amendment 22, in
clause 25, page 17, line 34, at
end insert—

‘(ba) that the
appeal, if granted, would have effects inconsistent with the duties of
the CAA under section 1,
or’.

Graham
Stringer: I apologise for jumping the gun previously; I
thought we were taking these two amendments together, but I was in
error.

I
agree with the basic changes being made here. As my hon. Friend the
Member for Barrow and Furness said, relying on judicial review to get
decisions is not a sensible way to run an airport. It is sensible to
have an understood and thought-through appeals process. I also think
that in defining the appeals process in clause 24 we come to some of
the problems, ambiguities and, perhaps, even contradictions that arise
when the Bill switches its focus from what happened previously, when
the interests of the airlines were what needed to be considered. As
that has changed to the interests of the passenger and freight user, we
have arrived at a half-way house, which could lead to some problems in
future.

The amendment
says
that

“the
appeal, if granted, would have effects inconsistent with the duties of
the CAA under Section
1”.

In
other words, an appeal would not be allowed if it was in conflict with
the duties defined in clause 1, which are effectively the interests of
the passenger and the freight user. What troubles me, which is why I
tabled the amendment, is what has troubled me on previous amendments. I
can find no definition in the Bill—if there is one I should be
grateful if the Minister could tell me—of what the
passengers’ interests are.

It has been
clear from previous arguments and discussions between airlines and
airports that the interests of low-cost carriers—including the
most aggressive low-cost carriers, such as Ryanair—are very
different from those of American Airlines, British Airways, Delta or
Singapore Airlines, which want to provide a quality experience. Both
types of airlines are materially affected by the licensing
arrangements, but they would have very different views on the
definition of the interests of the passenger. Put simply, Ryanair wants
things cheap and cheerful: it wants

Column number: 223

costs to be as low as possible, and passage through the airport and the
other services to be as quick as possible. British Airways, however,
may want a much more sumptuous, lavish experience for their first and
business-class passengers. How is the Competition Commission expected
to decide between Ryanair, which may appeal on one basis when it is
materially affected, and, say, Singapore Airlines, which may be
affected in a different way, where this is all leading to the same
licensing conditions? I find it difficult to imagine how the
Competition Commission would approach that.

The judicial
review process was a procedural one; if an airport was taking decisions
in an unreasonable way, without taking account of the facts and without
consulting properly, it would lose the judicial review. These are a
different set of criteria that do not define the freight user’s
interest or the passenger’s interest, which lies at the very
heart of this Bill. I am increasingly worried that if those interests
are not defined, the Competition Commission will not have good
guidelines on which to make its decisions. That is my problem, which is
why I have tabled the amendment. I want to understand how the
Government intend to make sure, when airlines or air users appeal, that
the interests of the passenger and the freight user are
paramount.

Mrs
Villiers: I am grateful to the hon. Gentleman, as ever,
for his remarks and for the opportunity to debate the amendments. As
with many debates in Committee, I understand and sympathise with the
aim of the amendments but I do not feel that they are necessary and I
hope to convince the Committee that the Bill deals with the points they
raise. I will deal specifically with the amendments before I touch on
the broader issues that the hon. Member for Blackley and Broughton
raised.

Our
aim is to establish an appeals process that facilitates transparency,
accountability and the timely resolution of appeals. As we have
discussed this morning, clauses 24 and 25 provide that
permission to appeal should be granted only where appropriate. The
amendments would not change how the Bill works in practice; in effect,
they would be empty provisions, because clause 30 substantially
delivers the outcome that they seek.

Subsections
(2), (3) and (4) of clause 30 provide that the Competition Commission
be subject to the clause 1 primary duty to passengers when deciding an
application for permission to appeal under clauses 24 and 25;
determining such an appeal, including taking decisions and giving
directions under clause 27; and deciding an application for permission
to intervene. The granting of a direction to suspend a licence is
governed by slightly different criteria.

11.15
am

I
hope I can reassure the hon. Member for Blackley and Broughton that the
combined effect of clause 24(5)(b), clause 25(5)(b) and clause 30
ensure that the Competition Commission is subject to the primary duty
in clause 1 when deciding whether permission to appeal a licence
condition or licence modification should be granted. I
recognise, however, that the hon. Gentleman has raised wider issues
about how the regulatory structure will address the interests of end
users. I fully acknowledge that, at times, the interests of different
passenger groups will contrast, and they will aspire to different
outcomes as they travel through the airport.

Column number: 224

Last week, we
debated that point in relation to the interests of present and future
passengers, so there is no doubt that the CAA, in its decisions, and
the Competition Commission, when considering appeals, will need to
think intelligently about how to balance and deal with such conflicting
interests. I believe that the CAA has the capacity to
balance the interests of different groups, as provided for in clause
1(5), which we debated last week.

There
is no single right answer that the Committee can give as legislators
about the decisions that the CAA might take, in terms of how to deal
with conflicts between the interests of different passengers. It is
good practice, however, to vest such decisions in an independent,
expert regulator, with the maximum flexibility to ensure that we have a
regulatory system that is responsive to passengers and promotes their
interests, but does not impose unreasonable or unnecessary costs on our
airport sector. With that, I hope the hon. Gentleman will consider
withdrawing the
amendment.

John
Woodcock: I apologise if the order of contributions is
slightly unconventional; I probably should have been quicker on my
feet. Amendment 22 uses the same text as amendment 5, tabled by my hon.
Friends the Members for Blackley and Broughton and for Bolton West, but
for a different—although I would say
complementary—reason.

Given
the concerns that we have discussed about the potential for vexatious
or frivolous appeals over new licences, it is right that we should look
to ensure that appeals on the modification of licence conditions should
be suitably regulated. In particular, we believe that there is a strong
case that the appeals mechanism should reflect the primacy of the
duties that the Bill and previous Bills have placed on the CAA. We
strongly support the Bill’s aim to orientate the CAA’s
duties towards using economic regulation to promote airport
users’ interests and towards promoting competition in the
provision of airport operation services, along with the secondary
duties, set out in chapter 1 of the Bill, which include ensuring the
licence holder’s ability to finance their operations, promoting
economy and efficiency on the part of licence holders, and meeting
international obligations.

Given
the importance of those duties, it could be a remarkable waste of time
and resources if appeals were permitted against licence conditions
intended to bring the CAA within those duties. Following the
Bill’s passage, new and amended duties imposed on the CAA could
require a significant number of licence modifications over the coming
years, to bring the CAA’s operations in line with those duties.
It could be damaging to the interests of passengers and freight
shippers—as well as being contrary to the will of the
House—if such modifications were then subject to lengthy and
repeated appeals by either airports or airlines.

The
amendment seeks to provide the Competition Commission with additional
grounds to refuse an appeal request, permitting it to judge that should
the appeal be granted, it would place the CAA in breach of its duties,
as set out in the Bill. By proposing the amendment, we are seeking not
only to protect the interests of airport users, but to provide
additional force to the duties rightly placed on the CAA by the
Bill.

Column number: 225

Mrs
Villiers: I am grateful to the shadow Minister for his
comments. I do not think that I need to add to what I have already
said. Clause 30 delivers what the amendments intend, so I urge the
Committee to reject them if the Opposition put them to a
vote.

John
Woodcock: I do not feel that that response answers my
point, and I do not know whether my hon. Friend the Member for Blackley
and Broughton will accept it. However, we will not push the matter to a
vote at this stage; we will go away and reflect on
it.

Graham
Stringer: I thank the Minister for her reply. She has
dealt comprehensively with my technical points by pointing me in the
direction of clause 30, which defines the primary objectives. The
Minister could reflect further, however, on more definition to help the
Competition Commission with what the interests of freight users and
passengers may be.

One obviously
cannot anticipate every particular appeal and advise the Competition
Commission on what it should do in each situation. On the other hand,
leaving the Competition Commission without any adequate definition of
what the interests of freight users or passengers might be is probably
leaving it with too much work and may lead to some perverse
consequences.

I am happy to
withdraw the amendment, particularly as the technical points have been
answered completely, but I ask the Minister to reflect further on
whether more definitions are needed in the
Bill.

Mrs
Villiers: I am grateful for the hon. Gentleman’s
further remarks. As I have said many times, he has great expertise in
these matters. However, I continue to believe that it would be wrong
for us to “hard code” into the Bill a particular
definition of exactly how the end user is best served. It is better to
give the CAA broad discretion and to leave it up to the Competition
Commission to make sensible decisions on the basis of the constraints
already set out in the Bill in relation to the appeals
framework.

However,
there is a route for ministerial input into the process as a whole,
because clause 2 provides for the Secretary of State to issue guidance
to the CAA that may be of assistance when it makes decisions under the
primary duty. There are non-legislative options to provide further
guidance to the CAA in the future, so that may be useful when it makes
decisions on the end user’s
interests.

The
Chair: Mr Stringer, can you confirm that you want to
withdraw the
amendment?

Graham
Stringer: I beg to ask leave to withdraw the
amendment.

Amendment,
by leave,
withdrawn.

Clause
24 ordered to stand part of the
Bill.

Clause
25 ordered to stand part of the
Bill.

Clause
26

When
appeals may be
allowed

John
Woodcock: I beg to move amendment 36, in
clause 26, page 18, line 10, leave
out paragraph (c).

Column number: 226

The
Chair:With this it will be convenient to discuss
the following: amendment 48, in schedule 3,
page 87, line 41, leave out sub-sub-paragraph
(c).

John
Woodcock: Before the Committee loses the will to live at
the sight of all these amendments, I should explain that they are
simple, probing amendments that would achieve the same thing.

We question
the basis on which the Competition Commission will decide that the
“exercise of a discretion” is wrong before the appeal has
been granted. To decide what was wrong in any instance would surely be
a judicial process that would require evidence and
representations from both sides of the argument. Will all interested
parties be able to make representations to the Competition Commission
before it allows an appeal to be granted under 26(c)? Will a party
asking the Competition Commission for an appeal under 26(c) have to
inform other interested parties of the grounds of their appeal in order
to provide
evidence?

Mrs
Villiers: The hon. Gentleman asks some specific points
about the procedure in relation to paragraph (c), but it is important
to address the issues raised by the amendment he has
tabled—namely, the deletion of that
paragraph.

The
amendments seek to reduce the grounds on which an appellant could make
an appeal to the Competition Commission against licence conditions and
modifications of licence conditions. Although I welcome the opportunity
to debate this important issue, for reasons similar to those I set out
in relation to the last group, I am concerned that the amendments would
damage the carefully constructed appeals process that the Government
have included in the Bill.

I welcome the
acknowledgment that these are probing amendments; it was helpful and
constructive of the hon. Gentleman to make that clear. Even so, there
are some technical problems with them. The amendments seek to remove
many references to the phrase

“the decision
was based on the wrong exercise of a
discretion”,

but
they do not delete it entirely from the Bill. My concern goes beyond
technical matters, important though those are in a complex area of
policy. As with the previous group, the Opposition seek to reduce the
effectiveness of the right of appeal. I consider that narrowing the
right of appeal in this way is not necessary and might harm the ability
of airlines to defend the interests of their
passengers.

As
we have already discussed, the Bill builds in a number of constraints
on the appeals process. These include giving the Competition Commission
the power to refuse permission to appeal where the grounds are trivial
or vexatious or have no reasonable prospect of success. But the three
grounds of appeal in clause 26(2) also play an important part in
ensuring that the appeals system provides effective redress for
airlines without enabling it to be used unfairly to disrupt the
decision-making process or displace the CAA as the regulator.

Column number: 227

The three
grounds (a), (b) and (c) already present a relatively high test to
applicants wishing to appeal. To remove paragraph (c) would make it
even more difficult to appeal successfully. I appreciate that
Opposition Members do not wish to see CAA decisions disturbed where
there is no good reason—indeed, none of us wants to give
appellate bodies powers that are too broad when it comes to overturning
decisions by the CAA. However, appeals that have merit should be heard
if airlines are to play an effective role in defending the interest of
passengers.

The three
grounds in subsection (2) are widely used in appeals procedures in much
of the English legal system. They are based on civil procedure rules
that govern appeals from lower courts to higher courts. It is worth
noting that the third ground, which the amendment seeks to delete, will
not be established merely if the appeal tribunal would have taken a
different approach from that of the CAA if it had been the decision
maker; rather, it would apply where the Competition Commission is
satisfied that the CAA has exceeded the generous ambit within which a
reasonable disagreement is possible. Put simply, if there is more than
one reasonable outcome, the CAA’s decision cannot be overturned
simply because the Competition Appeal Tribunal would have come to the
conclusion that a different outcome was the better
option.

11.30
am

The
adjudicative nature of the appeal rights is an important means of
preventing the kind of two-tier decision making that we debated in
relation to the previous amendment. We have not introduced an
investigative appeal process where an appeal body would in effect
retake the decision, substituting its own views for those of the CAA.
The purpose of limiting the scope of the Competition
Commission’s powers is to prevent it from simply taking a fresh
decision on the basis that it prefers a different approach. I cannot
accept the amendments because I believe they would destabilise an
appropriate balance between regulatory certainty and preserving the CAA
as the regulator, and the need to correct injustice where errors
occur.

I will take
advice on the points that the hon. Member for Barrow and Furness made
about the procedures to be applied and the scope of third parties to
take part in the appeals process, and I will get back to him. I do not
have the answers in front of me because those points are not directly
relevant to the amendments, but I am happy to look into those matters
and come back to him.

John
Woodcock: That is fine. On that basis, I beg to ask leave
to withdraw the amendment.

Amendment,
by leave,
withdrawn.

Clause
26 ordered to stand part of the Bill.

Clause
27

Determination
of
appeal

John
Woodcock: I beg to move amendment 37, in
clause 27, page 18, line 19, leave
out ‘and any directions given by the
Commission’.

Column number: 228

The
Chair: With this it will be convenient to discuss
amendment 38, in
clause 27, page 18, line 33, leave
out ‘other than the
CAA’.

John
Woodcock: Amendments 37 and 38 are probing amendments. In
amendment 37, the Opposition seek to question the directions that the
Competition Commission can give. Can it, for example, direct the CAA to
ignore evidence or representations from interested parties that have
been granted an appeal? I hope that the Minister will explain the full
extent of the directions that the Competition Commission can give, and
where that is set out. That is important, because clause 27(6) states
that anyone who is given directions by the Competition Commission must
comply with them.

I hope that
the Minister will also be able to explain the scenarios in which the
Government envisage that the directions in subsection (2)(b) will be
more appropriate than those in (2)(c). For example, when an appeal is
granted, when would the Competition Commission remit the matter to the
CAA for reconsideration, as set out in (2)(b), and when would it
substitute its own decision for that of the CAA, as set out in (2)(c)?
The Competition Commission’s power to substitute its own
decision for that of the CAA needs further explanation, because
subsection (4)(a) gives the commission the power to give directions to
the CAA even though it has already substituted its own decision for
that of the CAA.

The purpose
of amendment 38 is to question why the CAA will be exempted from the
enforcement action that clause 27(7) allows through the courts in
relation to appeals to the Competition Commission regarding licence
conditions. I hope that the Minister will explain why that is the case
when the Bill provides that all other parties are liable to enforcement
action through the
courts.

Mrs
Villiers: Clause 27 sets out what the Competition
Commission must do once it determines an appeal on a licence condition.
We are talking about the results of the appeal. Where the appeal is
allowed, in whole or in part, subsection (2) gives the Competition
Commission three options: to quash the decision taken by the CAA; to
remit the matter to the CAA for reconsideration; or to substitute its
own decision for that of the CAA. The second of those three
options—remission back to the CAA for a fresh decision—is
the focus of amendment
37.

The
Bill provides that when the CAA makes the decision again, it must
comply with directions given by the Competition Commission. Amendment
37 proposes to remove the obligation to comply with the
commission’s directions.

I have
listened carefully to the arguments of the shadow Minister, but I am
not persuaded to support the amendment; I am grateful for the
indication that it is more of a probing amendment than one that will be
pressed to a Division. I am not entirely sure that I understand exactly
the rationale behind the amendment—indeed, the Opposition appear
to accept that the Competition Commission should be the appellate body
for appeals against decisions on licence conditions. If they did not, I
would have expected a lot of amendments to delete that role.

If one
accepts that the Competition Commission is an appropriate appeals
body—as I have said, many stakeholders, particularly the
airlines, have welcomed

Column number: 229

the new appeals rights that the Bill grants—I can see no good
reason for preventing the CC from giving directions to the CAA when it
has decided an appeal. I do not think it would be right for the Bill to
state exactly what those directions might include. There is merit in
giving flexibility to the Competition Commission to decide for itself
what directions are appropriate within the constraints of the framework
provided by the Bill, some of which we have already
considered—namely that, in making many of its decisions, it is
obliged to have regard to the primary duty.

I hope that
sets out my response to the specific matters raised by the shadow
Minister. This type of procedure works well in many other regulatory
contexts, so there is no need to include in the Bill examples or
specifics as to what the Competition Commission’s directions
might be. The commission itself has agreed that giving it the ability
to remit the matter to the CAA is important, and it is well aware that
there may well be cases where it is more appropriate for the CAA to
re-decide the matter in the light of the appeal to the Competition
Commission. One of the key practical problems with the amendment is
that without CC directions, the CAA’s reconsideration and
decision could be more susceptible to another appeal.

In my view,
the option to remit the matter back to the CAA, with directions to be
taken into account when the CAA makes a fresh decision, provides a
useful flexibility, and it would be unfortunate to remove that from the
Bill. If it were deleted, that would probably lead to more instances
where the Competition Commission would go for the option available in
subsection (2)(c) and substitute its own decision for the CAA’s.
I do not believe that is what the Opposition are intending, so I hope
that the amendment remains just a probing one.

When
preparing for today’s debates, I was unsure about the objective
of amendment 38. It seeks to amend subsection (7), which provides that
directions from the CC, given under clause 27, can be enforced in the
same way as an order of the High Court or Court of Session against
anyone other than the CAA. As we have heard from the shadow Minister,
the amendment deletes the exemption for the CAA, which means that the
CAA could be pursued through the courts as if in breach of a court
order if it did not comply with a direction from the Competition
Commission.

There are
significant technical flaws with amendment 38. Clause 27(6) requires a
person to whom a direction is given to comply with it, so if the CAA
failed to comply with a lawful direction from the CC, it would be
acting unlawfully. The Bill’s drafting is based on a precedent:
section 175(8) of the Energy Act 2004 provides that directions, other
than directions given to the Gas and Electricity Markets Authority, are
enforceable as if they were orders of the High
Court.

One
of the reasons why an express sanction, such as that outlined in clause
27(7), is not needed for the CAA is the availability of judicial
review. Judicial review, even without an express statutory remedy, could compel the CAA, as a public body discharging public functions, to comply with a lawful direction.

Column number: 230

Where a
direction is given in circumstances in which the Competition Commission
substitutes its decision for that of the CAA, no further appeal is
possible under chapter 1. So in this case, judicial review would be
possible. Accordingly, although the obligation may not be enforceable
as if it were an order of the High Court or the Court of Session, as
provided for persons other than the CAA, compliance could be obtained
through the appeals system or the courts, under judicial review, as
appropriate.

I
hope I have reassured the shadow Minister that, although the CAA is
specifically excluded from subsection (7), that does not
mean that directions cannot be enforced against
it.

John
Woodcock: On that basis, I beg to ask leave to withdraw
the
amendment.

Amendment,
by leave,
withdrawn.

Clause
27 ordered to stand part of the
Bill.

Clause
28

Determination
of appeal: time
limits

John
Woodcock: I beg to move amendment 39, in
clause 28, page 18, line 40, leave
out ‘24 weeks’ and insert ‘12
weeks’.

The
Chair: With this it will be convenient to discuss
amendment 40, in
clause 28, page 19, line 32, leave
out subsection
(9).

John
Woodcock: I have two more probing amendments, both of
which address time
scales.

I
hope the Minister will use amendment 39 to explain why the Competition
Commission is to be given 24 weeks to make a decision on an
appeal, when an appellant has only six weeks to submit an appeal after
the CAA makes a decision, as set out in paragraph 1(1) of
schedule 2. The amendment would shorten the period given to
the commission. If the Minister does not want to accept the amendment,
I hope she will explain why the commission is currently slated to get
quadruple the time that an applicant will receive to make a
decision.

Amendment
40 probes subsection (9), which gives the Secretary of State the power
by regulation to modify the time periods set out for appeals in respect
of licence condition decisions by the CAA. I hope the Minister will be
able to set out the steps she thinks she will be able to take to ensure
that that power does not create uncertainty for all parties
involved.

Mrs
Villiers: As I hinted during discussions about previous
amendments, the time limits have been designed to provide certainty to
parties throughout the appeals process and to provide for timely
determination of appeals. Again, as with other aspects of the appeals
mechanisms, we have based many of our proposals on other regulatory
systems.

Column number: 231

The appeals
process in the Bill is based on the Electricity and Gas (Internal
Markets) Regulations 2011. Under that regime, the Competition
Commission must determine an appeal against a price control decision
within six months and an appeal against any other decision within four
months.

We
support the prompt resolution of an appeal and believe that 24 weeks is
an appropriate period within which to expect the Competition Commission
to determine an appeal. We want appeals to be dealt with in a timely
manner, but that must be balanced against the practicalities of the
time needed to ensure that justice can be done and a decision taken
properly and appropriately.

If amendment
39 were accepted—I am grateful for the indication that it is a
probing amendment—there is a risk that full consideration would
not be possible within the shortened time period, and that we would end
up with poorer-quality decision making as a result. Judicial review
would be a possibility as well. The Competition Commission has
confirmed to the Department for Transport that it thinks that 12 weeks
would be too short a period to consider evidence from the party, test
the evidence and reach a well-reasoned and robust determination. The
possible impact on justice could have obvious consequences for
fairness.

11.45
am

The
shadow Minister asked about the distinction between the CC’s
24-week process and the six-week deadline placed on appellants, but we
need to consider the six-week deadline in the round. He himself called
for care to be taken not to make the appeals process overly complex,
too long or too expensive. We think a degree of strictness is important
in relation to time limits—not too long, and not too
short.

Although the
six-week timetable is potentially demanding for appellants, the CAA is
under obligations to consult on licence conditions before making its
determination, so groups that want to appeal, such as airlines and so
on, have a significant amount of visibility about the terms of the
licence condition well before the clock starts ticking on the six
weeks. It is not as though appellants start from zero and have to put
together their entire appeal in six weeks. In reality, they will have
known for some time the proposed content of the licence, as a result of
consultation.

If the CAA
decides to make a big change to the licence condition on which it has
consulted, it will often be obliged to consult again. We must consider
the six-week deadline in the context of where it appears in the process
overall and of the other safeguards that the Bill provides to ensure
that potential appellants are treated fairly.

I return to
the specific concerns about the 24 weeks. It would have practical
consequences if we were significantly to constrain the time available
for the CC to make its decisions. There would be a risk of further
appeals and judicial review applications, protracting the process in a
way that I am sure Opposition Front Benchers would agree was not
attractive.

The 24 weeks
is part of the package of proposals put together after extensive debate
with stakeholders and designed for appropriate balance between a timely
and efficient process and one that enables airlines effectively to hold
the CAA to account and defend passengers’

Column number: 232

interests. The amendments, like others that we have discussed, could
destabilise that balance. Indeed, some concern has been expressed that
the time limits in the Bill are overly strict, so I cannot see a cogent
case for shortening the time limits as the hon. Member for Barrow and
Furness proposes.

The hon.
Gentleman asked, in relation to amendment 40, what constraints or care
the Government would take to ensure that the power to produce delegated
legislation under the clause would not cause unnecessary uncertainty.
As I said, I think that we have the right balance in the appeals
process package as a whole, and I am confident that the time limits
that we have proposed are workable and right. However, it makes sense
to retain the option to amend them via secondary legislation, as
provided for in subsection (9).

As we want
this legislation to last, we feel that it would be prudent to retain
some flexibility to adjust those time periods if experience proved that
that would be desirable. The Competition Commission agrees that that is
a useful power for the Secretary of State to have and appropriate for
secondary legislation. Enabling the Secretary of State to modify the
periods of time specified in the clause eliminates the need to use
primary legislation should processes change and experience prove that a
change to the appeal time limits is necessary.

Of course, in
making such decisions, the Secretary of State would take care and would
be subject to the ordinary parliamentary processes that are applicable
in relation to secondary legislation, and, where necessary and
appropriate, would undertake consultation as well. I do not think that
that would inject unnecessary or unacceptable uncertainty into the
framework set out in the Bill. I hope that the shadow Minister has
received reassurance on the time limits.

John
Woodcock: I beg to ask leave to withdraw the
amendment.

Amendment,
by leave, withdrawn.

Clause 28
ordered to stand part of the
Bill.

Clause
29

Determination
of appeal: publication
etc

John
Woodcock: I beg to move amendment 41, in
clause 29, page 20, line 13, leave
out ‘may’ and insert
‘must’.

This
is another probing amendment. I hope that the Minister can quickly
clear this matter up and provide reassurance on the wording. We are
concerned that, as it stands, there could be a scenario in which the
Competition Commission could, in theory, argue that it would be right
to publish commercial information that could harm legitimate
business interests, as set out in clause 29(5)(a). We cannot envisage
any scenario in which that would be acceptable, so why is the
legislation so drafted? Why not make things clearer by ruling the
possibility out by using the phrase “must not
publish”?

Mrs
Villiers: The intention of the drafting is to enable the
Competition Commission to balance the public interest in disclosure
against the potential damage to the private interest if disclosure is
made. It is the sort of

Column number: 233

dilemma with which many bodies across the public sector and Government
deal with regularly. There may be cases where there is an overwhelming
public interest in disclosing information and where relatively minor
damage would be done to a private party, or where the damage done to a
private party is secondary. By way of reassurance, I should say that
the same provision can be found in the regime for regulating
electricity and gas, and it does not appear to have caused
problems.

We believe
that it is appropriate that the Competition Commission should be left
with the discretion outlined in the clause. I have no reason to believe
that the commission would act irresponsibly or unreasonably in
exercising that discretion, whereas the inflexibility introduced by
amendment 41 could prevent the disclosure of information of significant
public interest.

John
Woodcock: I accept what the Minister has said so far, but
can she give any reassurance on what redress mechanisms would exist if
the Competition Commission were to act irresponsibly and publish when
there was not an overwhelming public interest? We can assume that it
would be a difficult and contested matter if such an occasion were to
arise.

Mrs
Villiers: Ordinary judicial review would certainly be
available. If the Competition Commission were proposing to publish
information that the parties involved considered sensitive and
confidential, so that the commission should not use its discretion
under the clause to publish, they could seek judicial review of that
decision. If necessary, they could presumably seek injunctive relief to
prevent publication and use the court system in that way, so they would
not be entirely without redress.

I am slightly
surprised; Oppositions generally press for more transparency, and there
is a case for leaving the discretion up to the Competition Commission.
That occurs in other regulatory sectors and has not caused problems. We
can be confident that the Competition Commission will exercise the
discretion in a responsible way and with proper regard to the
legitimate interests of third parties. With those comments, I hope that
the hon. Gentleman will withdraw the
amendment.

John
Woodcock: I beg to ask leave to withdraw the
amendment.

Amendment,
by leave,
withdrawn.

Clause
29 ordered to stand part of the
Bill.

Clause
30 ordered to stand part of the
Bill.

Schedule
2

Appeals
under sections 24 and
25

John
Woodcock: I beg to move amendment 42, in schedule
2, page 69, line 22, leave out
‘could have been raised by the applicant or a relevant connected
person’ and insert ‘have been raised by the
applicant’.

The
Chair: With this it will be convenient to discuss
amendment 43, in schedule 2,
page 69, line 25, leave out subsection
(6).

Column number: 234

John
Woodcock: We have two more probing amendments that I hope
we can deal with relatively briefly. By deleting “could”
from paragraph 2(5)(b) of schedule 2, amendment 42 would have the
effect of the Competition Commission being able to exclude an appeal
only if the matter had already been raised in a previous appeal. If the
Government want to draw exclusions wider than that, I hope they will
set out why that is
correct.

Amendment
43 would remove paragraph 2(6) of schedule 2 and with it the
references to a “relevant connected person”, because we
are concerned that the current wording is too broad and there could be
a good case for its refining. For example, does that mean any person
with a personal or commercial link? Does the Minister envisage that no
such differentiation would be made? If she thinks that such
differentiation should exist, would she consider tightening the wording
of the
legislation?

Mrs
Villiers: I welcome the hon. Gentleman’s comments.
As we have heard, amendment 42 seeks to remove the power from the
Competition Commission to exclude matters that could have been heard by
a previous appeal. The relevant scenario is where a first appeal
results in the matter being remitted back to the CAA, under clause
27(2)(b), which then repeats the licence modification process, as under
clause 22, and then another appeal is made. Amendment 42 is unnecessary
and I hope that I can provide the shadow Minister with the reassurance
that he wants about the rationale for the approach taken in the
Bill.

In
short, we want to encourage the appellant to produce the best case the
first time, which is another element of our efforts to ensure that
unnecessary expense is not incurred as a result of avoidable appeals,
because, as the shadow Minister has acknowledged, a costly appeals
process will ultimately have an impact on costs for
passengers.

It is also
reasonable that other stakeholders should be entitled to assume that,
where it has appealed and failed, a party will not then ordinarily be
able to relitigate points or to raise fresh points directly or through
connected persons. Essentially, the change proposed in the amendment
would allow people to have two bites of the cherry and to seek to
appeal again about something that really should have been dealt with by
a previous appeal. If we were to adopt the amendment, the appeal system
would become longer, more costly and less
efficient.

12
noon

On
what the shadow Minister said about connected parties, I am slightly
struggling to find where they are defined in the Bill; I am sure that
is in there somewhere. Certainly the concept of a connected person is
used in a number of different contexts. It tends to be defined in
relation to each specific context. [Interruption.]
I am assisted by a note that mentions clause 71.

I will
certainly look into the matters that the hon. Gentleman has raised. It
is important to have clarity in relation to who counts as a connected
person and to ensure that appellants cannot use connected parties to
enable them to have a second chance at an appeal that should really
have been covered by a previous one. That could prove unnecessarily
costly and protracted. We should retain the restriction on pursuing
appeals via connected persons. I will double-check where the definition
of connected persons appears in the Bill.

Column number: 235

John
Woodcock: On the basis that the Minister can write to me
on the second point, I beg to ask leave to withdraw the
amendment.

Amendment,
by leave,
withdrawn.

John
Woodcock: I beg to move amendment 44, in schedule
2, page 77, line 28, leave out
sub-sub-paragraph
(b).

This
is another probing amendment, which asks the Minister why the
three-person group established by the Competition Commission to
consider and determine appeals would not have to reconsider any
decision made or direction given by the group before one of its members
had been replaced, if that needed to happen.

One of the
reasons for removing a group member could be that, because of a
particular interest, it would be inappropriate for that person to
remain a member of the group. That is set out in paragraph 17(1)(c).
That implies that someone could have been a member of the group
reviewing an appeal when they had a commercial or personal interest
that would lead them to have a biased judgment. I should be grateful if
the Minister explained why, if the members had to be changed under
those circumstances, what had gone before could still stand and the
group would not necessarily have to reconsider previous
decisions.

Mrs
Villiers: I am confident that the provision as drafted
offers a sensible and balanced approach to replacing members of the
group and does not pose a threat to justice being carried out in a
proper and fair way. If there were any possibility of a bias or an
apparent bias, replacing the member would not of itself cure that.
Paragraph 17(3)(b) provides that the mere fact that a member is
replaced does not of itself affect earlier decisions. We believe that
this is a sensible and practical approach to this issue that does not
cause injustice. Allowing the amendment would mean that any change in
the Competition Commission group determining the appeal would or could
have an adverse impact on all earlier decisions by the group and might
require proceedings to be restarted.

This is
another instance in which I fear that if the amendment were adopted, we
could end up with a slower, more costly system that ultimately would
not be in passengers’ interests. Returning to the start of the
decision-making process merely because of a change to the membership of
the Competition Commission panel could prove expensive, and is not in
line with our wish to have a smooth-running appeals process that
delivers a timely resolution.

Changes to
the composition of appeals panels are inevitable. For perfectly
ordinary reasons, people move on to different roles or jobs. If every
appeal had to start from scratch whenever a panellist left the
Competition Commission, that would lead to considerable extra costs and
delay, which would not be in the interests of airports, airlines, the
CAA or passengers.

If a member
were replaced because of the possibility of apparent bias, it would
remain open to anyone with sufficient interest to seek to have the
decision or the proceedings quashed by the High Court, on that basis.
Equally, if replacing a member part way through the appeal would result
in an incurably unjust or unfair hearing, again, the High Court could
intervene. The High Court’s powers and public law remedies
should

Column number: 236

ensure that any real injustice arising from the underlying reason for
replacing a member will remain subject to an appropriate legal
process.

Similar
provisions to those in the Bill are in operation in the regulation of
electricity and gas markets, without causing problems. I hope therefore
that the shadow Minister is reassured that the provision in the Bill
serves an important practical purpose when, for various ordinary
reasons, the composition of the panel changes. However, as it would
not, in any sense, inhibit redress where there is concern about
apparent bias in relation to a member of the panel taking decisions for
the Competition Commission, I hope that the shadow Minister feels able
to withdraw the amendment.

John
Woodcock: We will reflect on that response. I
beg to ask leave to withdraw the amendment.

Amendment,
by leave, withdrawn.

Schedule 2
agreed
to.

Clauses
31 to 42 ordered to stand part of the
Bill.

Clause
43

Amount
of
penalty

John
Woodcock: I beg to move amendment 45, in
clause 43, page 29, line 25, at
end add—

‘(d) any steps
taken by that person which aggravates the damage caused by
contravention of the condition or
requirement.’.

This
is another probing amendment that seeks a response from the Minister on
whether penalties given by the CAA for contravention of a licence
should take into consideration whether any actions taken by the person
who broke the licence could be seen as having been done in an
aggravating manner. I have tabled the amendment because clause 43(3)(c)
obliges the CAA, when setting the penalty level, to have regard
to

“any
steps taken by that person towards remedying the consequences of the
contravention”.

A
penalty can be lowered if the person who broke a licence condition took
action to reduce the impact of that breach, so surely it is only right
for someone who did the opposite to be penalised. Why does the Bill not
set out provisions to do that?

Mrs
Villiers: First, I welcome the consensus that has greeted
the clauses that we have just adopted. They contain important
provisions and I welcome the fact that they have been adopted
unanimously and without dissent—an indication of the strength of
the overall framework in the Bill. The enforcement regime that it
contains is echoed in a number of existing areas of economic
regulation, and I welcome the support that the Committee has
shown.

Amendment 45
gives us the opportunity to look more closely at the penalties regime,
which is an important element of the new system for economic
regulation. As the shadow Minister explained, amendment 45 would oblige
the CAA to take account of any steps that a person had taken that
aggravated the damage caused by their contravention of a relevant
condition or requirement. I note that the amendment does not require
that the

Column number: 237

person should have intended to aggravate the damage, but only that the
contravention should have had that effect.

The
purpose of the enforcement and penalty regime in general, and clause 43
in particular, is to bring airport licensees back into compliance as
soon as possible and to discourage non-compliance. The factors set out
in clause 43(3), to which the CAA must have regard in determining the
amount of penalty, are mitigating factors. When the CAA determines the
amount of penalty, those factors permit it to make allowance for the
licence holder’s efforts to return to compliance, and they are
likely to motivate the operator by providing a financial incentive to
move towards compliance.

Other
regulatory regimes adopt similar mitigating factors. Ofcom, for
example, must have regard to the same considerations under
section 97(2) of the Communications Act 2003. The addition of an
aggravating factor to clause 43(3) for the purposes of penalising the
licence holder would be inconsistent with the Bill’s approach to
the use of penalties for encouraging compliance.

Nothing in
the Bill prevents the CAA from taking the matters raised in the
amendment into account in determining the amount of the penalty. I hope
I can reassure the shadow Minister on that point. If the CAA wants to
do so, it may set out that intention in its statement of policy on
penalties, which it is required to prepare and publish under clause
58.

It is also
worth noting that no one who provided evidence to this Committee or the
Transport Committee requested such a change. For those reasons, the
Government do not consider the amendment to be necessary, but I hope I
have been able to reassure the shadow Minister that the CAA will have
the option of taking into account matters such as those specified in
the amendment.

John
Woodcock: I thank the Minister for that helpful
explanation. If the Bill does not need to confer on the CAA the power
to increase a penalty, because the CAA can do so anyway, why does the
Bill give it the power to lower a
penalty?

Mrs
Villiers: It is important to provide licensees with a
financial incentive to remedy their behaviour as quickly as possible,
so there is a reasonable argument for including that provision in the
Bill. I have listened to what the hon. Gentleman has said about
aggravating factors, but I assure him that there is nothing to prevent
the CAA from taking those into account in determining the level of a
penalty. For that reason, I must continue to oppose the
amendment.

12.15
pm

John
Woodcock: I hear what the Minister says about the
financial incentive for acting, but one could equally make the case for
spelling out the deterrent effect of the approach set out in the
amendment. We will not force the amendment to a vote, but we will
consider returning to it further down the track, so I hope that she
will reflect on it ahead of Report. I beg to ask leave to withdraw the
amendment.

Amendment,
by leave, withdrawn.

Clause 43
ordered to stand part of the Bill.

Column number: 238

Clause
44

Amount
of penalty: fixed
amount

John
Woodcock: I beg to move amendment 46, in
clause 44, page 29, line 28, leave
out ‘10%’ and insert
‘15%’.

The
Chair: With this it will be convenient to discuss
amendment 47, in
clause 45, page 30, line 41, leave
out ‘0.1%’ and insert
‘0.15%’.

John
Woodcock: These amendments are simply designed to try to
get the Minister to spell out the reasoning behind the size of the
penalty imposed on a person who breaks the licence. What is the
rationale for deciding that the penalty should not be higher than 10%
of a person’s turnover for the qualifying period? We have
suggested a penalty of 15%, but that is an equally arbitrary figure. We
have tabled the amendment so that the Minister can explain why she
believes that 10% is an appropriate figure. Why should the penalty not
be higher—or, indeed, lower—than that?

In a similar
vein, amendment 47 increases the daily penalty to 0.15% of a
person’s qualifying turnover for the qualifying period. Why was
the original figure of 0.1% decided on as the maximum level of the
daily penalty charged for breaking a licence? Why is that figure not
higher or lower than that?

Nigel
Mills: I rise to oppose the amendment, and to pose a
couple a questions about how the penalties are calculated.

Penalties
based on turnover can be burdensome for any business. If a business is
operating on a low margin, a fine based on turnover can more than
obliterate the entire profit made in the given period. However, we are
talking about a licensed operator abusing its market power, or
breaching its conditions, in such way that a penalty is appropriate.
That means that a serious offence has occurred. A significant financial
penalty should act as an effective deterrent to such behaviour, and I
have no objection to that.

According to
the regulatory accounts of Heathrow Airport Ltd for the most recent
financial year to 31 March 2011, its total revenue was about
£1.8 billion and its regulatory operating profit was £538
million. A 10% fine based on that total revenue would effectively
account for a third of its profits. We may accept that as reasonable,
and I suspect that Heathrow could probably stand that type of fine on a
one-year
basis.

However,
if we are trying to encourage airports to invest in improving the
quality of service, letting fines sneak up to 15% of turnover or higher
seems to be detrimental. We all know that other airports across the
country, which I accept are not currently regulated, are struggling to
make any money at all. Allowing the CAA to impose ever-increasing
fines, regardless of an airport’s profit or return, would not be
a sensible way to encourage the investment that our airports
need.

I
would say that 10% seems a relatively sensible level. It would
certainly be a significant cost to any business, and I do not think
that any airport would engage in anti-competitive behaviours or other
flagrant breaches of its licence because it thought that penalty too
slight to be worth worrying about.

Column number: 239

My
real concern is exactly what we are including in the definition of
turnover. In fact, subsection (7) allows the Secretary of State, by
regulation, to modify the definition of qualifying turnover. I know
subsection (8) suggests what those modifications might be, but there is
no actual definition of what could be done. Will the Minister run
through the scenarios for which she thinks she needs that
power?

I
accept that I may have missed this somewhere, but, from my reading, the
Bill is not entirely clear whether turnover based on regulatory
accounts means revenue from airport charges or from other revenue, too.
Heathrow’s accounts, for example, contain revenue from retail
operations, property revenue, rail revenue and other revenue. Are we
talking about a fine based on total turnover that includes all those
things, or are we talking about a fine that only affects the area in
which a breach occurred, which may well be in the airport operations,
rather than all those other
things?

I
am intrigued by what happens when an airport operator with retail or
catering operations sells a long-term franchise for an upfront fee and
therefore does not generate any annual turnover. There might be an
accounting distortion in which a fine could get at the retail and
catering income of some airports, whereas airports that have lost such
income seven years ago for a flat fee are not accounted for in that
way. Will the Minister clarify the scope of the power she is taking in
subsection (7) and how we can ensure that fines are imposed on a
consistent basis across all regulated
airports?

Mrs
Villiers: Like my hon. Friend, I am not convinced that
amendments 46 and 47 seek the right changes, so I hope that they will
not be pressed to a vote. I also hope I am able to provide some
reassurance in response to the shadow Minister’s
questions.

Like
the shadow Minister, I propose to address the amendments in the round
as they both seek to raise the maximum penalty for contravening a
licence condition by 50%. Amendment 46 seeks to raise the annual
penalty from 10% to 15% of an airport’s annual turnover and
amendment 47 seeks to raise the daily fine from 0.1% to 0.15% of annual
turnover.

In
response to my hon. Friend the Member for Amber Valley, I should say
that the qualifying turnover referred to in subsection (7) is total
revenue, so it does include revenue in addition to landing
charges.

Looking
at airports currently subject to economic regulation is useful when
considering the impact that the Bill and the amendments would have in
practice. At Heathrow, amendment 46 would increase the potential
maximum 10% fixed-penalty from £186 million to
£278 million; at Gatwick, the maximum fine would go
up from £46 million to £69 million; and at Stansted, the
maximum fine would go up from £22 million to
£33
million.

I
listened carefully to what the shadow Minister said. I agree that there
are convincing arguments in favour of setting the maximum penalties for
contravening airport economic regulation at high levels. Such arguments
are applicable across many spheres of competition law, where the 10%
and 0.1% figures, contained in the clauses, are also
employed.

The shadow
Minister asked what the rationale was for selecting those figures. They
are in use in other contexts—for example, in relation to
important aspects of European competition law. We need high maximum

Column number: 240

fines in this regard because breaching rules on competition and economic
regulation can sometimes be profitable. That is why the maximum
penalties need to be substantial enough to hurt, in the event that the
regulator chooses to impose
them.

John
Woodcock: Does the Minister have to hand the European
parallels that she mentioned and will she illuminate the Committee
about
those?

Mrs
Villiers: Yes, certainly. My example is article 23 of
Council regulation EC No. 1/2003 of 16 December 2002 on the
implementation of the rules on competition, which applies, as I said,
to maximum penalty levels of 10% return on the financial liability of
businesses. That is a fundamental plank of European competition
law.

The
reality is that the maximums in the Bill are high; I do not see a case
for raising them further. A fine of more than £180 million is
tough enough to be a genuine deterrent, even for a company as large and
successful as BAA. None of the witnesses who gave oral evidence to the
Committee asked for that change and it was not requested, so far as I
know, in written evidence. Indeed, the Airport Operators Association
said to the Transport Committee, during pre-legislative scrutiny, that
the proposed levels were too
high.

The
cap of 10% of turnover for a fixed penalty represents the maximum
threshold available to other regulators, such as the Office of Fair
Trading under section 36(8) of the Competition Act 1998. We have
already covered the use of the same 10% threshold in European law. It
is worth hon. Members recalling the points made by Iain Osborne of the
CAA when these matters were raised with him. In his words, it is
rare—almost unheard of—for fines to hit that high 10%
figure. In many ways, we seek to provide a
deterrent.

It
is worth drawing the Committee’s attention to the reputational
effect of having been fined at all. The reputational effect of the
fine, apart from its financial impact, is an important means of
ensuring that management teams change their behaviour and remedy the
non-compliance. Undoubtedly, we have a tough penalties regime and we
have the balance about right: it would provide an effective deterrent
and I do not see the need to raise the thresholds in the way that the
shadow Minister advocates. I hope that he asks to withdraw his
amendment.

John
Woodcock: On that basis, I beg to ask leave to withdraw
the
amendment.

Amendment,
by leave,
withdrawn.

Clause
44 ordered to stand part of the
Bill.

Clauses
45 to 47 ordered to stand part of the
Bill.

Schedule
3 agreed
to.

Clauses
48 and 49 ordered to stand part of the
Bill.

Schedule
4 agreed
to.

Clause
50 ordered to stand part of the
Bill.

12.30
pm

Clause
51

Enforcement
of information
notice

John
Woodcock: I beg to move amendment 52, in
clause 51, page 33, line 12, leave
out ‘£2,000,000’ and insert
‘£3,000,000’.

Column number: 241

The
Chair: With this it will be convenient to discuss the
following: amendment 53, in clause 51, page 33, line 13,
leave out ‘£100,000’ and insert
‘£150,000’.

John
Woodcock: These amendments are intended to probe, as is
becoming customary this morning. Amendments 52 and 53 probe the
penalties for those who fail to comply with a CAA request,
by notice, to provide information or documentation. I hope that the
Minister will take the opportunity to explain why the level for a fixed
penalty is set at £2 million in subsection (4). We suggest, with
no particular rationale, that that should change to £3 million.
We also suggest that the daily penalty of £100,000 should be
changed to £150,000. That gives the Minister the opportunity to
explain— I am sure she is looking forward to
it—why she set those levels, and the rationale behind
them.

Amendment 54
also relates to penalties for those failing to comply with a CAA
request to provide information or documentation. Subsection (9) gives
the Secretary of State the ability, by regulations, to replace the
amount at which a fixed penalty can be set, either for a daily penalty
or a fixed penalty. The amendment would prevent the Secretary of State
being able to undermine the CAA’s ability to penalise
non-compliance with its notices, if the Secretary of State was minded
to choose to reduce the level of the penalty.

If the
regulating power could only increase a penalty, it would be used only
if the CAA’s maximum penalty was deemed insufficient by the
Secretary of State. Can the Minister envisage any situation in which
she would seek to reduce the penalty? If not, why not simply accept our
amendment?

Mrs
Villiers: I am grateful to the shadow Minister for
explaining the rationale behind the amendments and indicating that
they, like the others that we have considered this morning, are probing
in nature.

The hon.
Gentleman’s main question concerned the rationale for selecting
the figures. One rationale is that the penalties set out in clause 51
are broadly in line with those of other regulators in other systems of
economic regulation. For example, they are in line with the maximum
penalty provided for Ofcom in section 139(5) of the Communications Act
2003. The Government and I consider the maximum fine proposed in the
clause sufficient to dissuade and have a significant deterrent impact.
Indeed, in May 2011, Ofcom increased its maximum

Column number: 242

penalty to that level. I do not believe that we have heard a cogent case
for a higher level than the Bill currently provides for.

Clause 51(9)
gives the Secretary of State the power to make regulations to vary the
amount that we have discussed. In amendment 54, the Opposition seek to
change the Secretary of State’s power to vary those
amounts so that she would be able only to increase them. The power and
the flexibility provided by subsection (9) are an important element of
the regulatory framework that we are setting up, ensuring that the
maximum amount set in the Bill can be adjusted over time to
reflect changes in monetary value. It will also ensure that
the amount of the penalty remains dissuasive and a proportionate means
of enforcing
compliance.

I
agree that it is not very likely that the power will be used to
decrease the maximum penalty; if a change is made, it is far more
likely to be in an upward direction. It is conceivable that there might
be circumstances in which a decision is made to decrease the penalty. I
do not see that a case has been made to place a further restriction on
this power. Inevitably, when one talks about fines and monetary values,
there is merit in ensuring that we have flexibility to respond to
changing circumstances in the future. Of course, any powers given to
the Secretary of State in secondary legislation are subject to the
appropriate scrutiny processes in
Parliament.

Gavin
Shuker (Luton South) (Lab/Co-op): Did the Minister look at
any other industries in setting the figures, in terms of the particular
offence that she discussed under the power to obtain
information?

Mrs
Villiers: As I mentioned, there is a direct comparison
with the regulatory regime applicable in the communications industry. I
am not sure whether the same approach is taken in different sectors,
but that is certainly an example of where a similar system already
operates without causing problems.

John
Woodcock: On that basis, I beg to ask leave to withdraw
the amendment.